Банкеръ Weekly

Briefs

BCC LEAVES THE SCENE, BUT TRACES REMAIN

The liquidation of one of the oldest and most lucrative state-run structures - the Bank Consolidation Company (BCC) should be finalized in October 2006. Set up in 1992 in order to consolidate and privatize the state-owned banks, it succeeded (although with a considerable delay) to fulfil its task in October 2003 when the last but one state-run bank was sold out. The deal was closed with the Hungarian OTP for 100% of DSK Bank's shares and EUR311MN was paid for the stocks. During the 11 years of its life the term in which the BCC had to fulfil its tasks was extended six times, mostly due to the fact that nothing was done for the divestment of state-owned banks till mid-1997. But within the following six years the BCC sold at accelerated rate United Bulgarian Bank (UBB), Post Bank, EXPRESSBANK (currently called Societe Generale EXPRESSBANK), HEBROSBANK, BULBANK, Biochim (presently HVB Bank Biochim), the State's stake (37% of the capital) of Central Cooperative Bank and finally DSK Bank. The BCC has received EUR870MN from these deals and since 1998 has transferred to the Finance Ministry's deposits about EUR850MN under various forms - profit tax, dividend, repayment of liabilities and liquidation quota. The ministry holds 99.4% of BCC's capital. What is more important, however, is that although the company will be deleted from the Bulgarian register of companies in a few months,
traces from BCC's operation will remain
some more years in the field of state finances. The reason is that during the sale of all above-mentioned credit institutions the BCC undertook certain commitments. It usually blocked in special escrow accounts 10 to 15% of the paid price and that amount was kept untouched from a year to a year and a half in the different cases. The escrow accounts are intended for covering compensations in case the buyer finds in the bank it has purchased problems for which it has not been informed in due time. The term of the escrow accounts for the sale of all formerly state-run banks has elapsed long ago, the money has been unblocked, included in BCC's current profit, and distributed among its shareholders. Anyway, that doesn't hold true about
the guarantee agreements
which the BCC has closed with some of the foreign investors. The first document of that kind was signed in the end of 2000 between the BCC and Italy's UniCredito which purchased BULBANK against USD360MN (EUR350MN). The contents of that agreement was confidential until the coalition cabinet of the National Movement Simeon II (NMSII) and the Movement for Rights and Freedoms (MRF) came to power and Milen Velchev became finance minister. It was him who made public in end-2001 the terms in the guarantee agreement, pointing out that his predecessor in the ministry and in BCC's BoD, Mouravey Radev had signed with UniCredito a contract that was disadvantageous to the State. Then it became clear that the BCC had undertaken to keep for five years huge amounts (between BGN300-500MN) in its accounts (diminishing each year). The idea was that the BCC had sufficient money to pay UniCredito if the investor suffered losses, if tax liabilities of BULBANK were established for which the Italians has not been informed. According to some bankers, UniCredito's executives personally insisted to Milen Velchev to stop fanning up that story so that they did not withdraw their investment from BULBANK. The finance minister had obviously complied with their request as the issue regarding the guarantee agreement was raised publicly never again.
Moreover, not long after that Milen Velchev himself was forced - in his capacity of BCC BoD Chairman - to sign guarantee
agreements with Bank Austria and OTP
which were almost the same as that for BULBANK. In November 2002 when the BCC transferred to Bank Austria its shares in Biochim against EUR82.5MN, the company signed with the buyer a 5-year guarantee agreement. The guarantee it gave Bank Austria was up to 35% of the paid price, or about BGN28.88MN. The BCC undertook to pay that amount to the Austrians if tax liabilities to the State were found in Biochim about which the investor had not been informed. A year later a similar commitment was undertaken as well to Hungary's OTP, the buyer of DSK Bank. However, the guarantee agreement with OTP was for six years and the maximum amount which the BCC undertook to cover should not exceed 25% of the price. These were the publicly announced parameters of the guarantees which Bank Austria and OTP received from the BCC.
However, it turned out that in order to start BCC's liquidation procedure, the company has to unburden from its commitments to UniCredito and OTP. In the beginning of 2004 the rulers decided to transfer the commitments to the State. BCC's Executive Director Nelly Kordovska was authorized to hold negotiations with the three investors in order to specify the terms under which the BCC would transfer its commitments to the State. The negotiations continued for almost six months. Afterwards, the drafts for trilateral agreements between BCC on one hand, Uni Credito, Bank Austria and OTP on the other hand, and the State on the third hand, were moved to Parliament for ratification. Then it became known that BCC's guarantee agreements contained some
secret clauses
It became clear, for instance, that the BCC and the Bulgarian State respectively after the agreement's ratification, has promised to compensate Bank Austria if the Pleven-based oil refinery Plama initiates and wins a lawsuit against HVB Bank Biochim for owing it USD86MN. And a commitment to OTP has been undertaken to compensate the Hungarians if claims to DSK are filed by private persons for owning part of the Bulgarian bank's stocks. These hidden clauses caused protests on the part of the opposition in Parliament, but everything turned out a storm in a glass of water and in July 2004 Parliament ratified the trilateral agreements just before the MPs went on their summer holidays. Thus, BCC's commitments to UniCredito, Bank Austria and OTP were transferred to the State. Even now it is still responsible for two of them.
The term of guarantees to UniCredito, undertaken during the sale of BULBANK, elapsed in the end of 2005. However, that does not hold true about the commitments to Bank Austria, which is already within UniCredito's group, and to Hungary's OTP. The State will get rid of the guarantee to the Austrians for the purchase of Biochim only in mid-2007. And the commitments to DSK Bank's owner will be in force till October 2009. Therefore, the entire legacy of the large-scale bank privatisation will be cleared away a long time after the has BCC vanished from the horizon.

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